BREAKING NEWS - Fender Europe fined £4.5Million for breaking competition law

guitars4you

https://www.mia.org.uk/2020/01/fender-fined-4-5m-for-illegally-preventing-price-discounts/

Here is the announcement published on the gov.uk website by the CMA:

Guitars make up a significant part of the wider musical instrument sector which has an estimated turnover in the UK of around £440 million annually. Online sales of musical instruments have grown to around 40% of total sales, making it even more important that musicians have access to competitive prices online.

Today’s move follows the Competition and Markets Authority’s (CMA) provisional findings on the Fender case in October 2019. The guitar manufacturer has admitted breaking competition law by pursuing a policy aimed at restricting UK retailers from discounting their online prices. The firm confessed under the CMA’s ‘leniency’ and ‘settlement’ procedures. Under these, a company admits acting illegally and co-operates in return for a reduced fine, which helps make the CMA’s investigation more efficient.

From 2013 to 2018, Fender required its guitars to be sold at or above a minimum price. This kind of illegal practice, known as resale price maintenance, often leads to customers missing out on the best deals because, even when they shop around, they find all retailers tend to be selling at a similar price.

During the course of its investigation, the CMA found evidence that Fender on occasion pressurised retailers to raise their online prices, after being tipped off that they were not toeing the line.

Exploring the case further, the CMA also found that certain Fender employees deliberately tried to cover up their actions by recording as little as possible in writing. But the investigation uncovered emails and texts from Fender’s IT servers and mobile phones, which helped to prove the illegal behaviour.

Andrea Coscelli, CMA Chief Executive, said:

It is absolutely essential that companies do not prevent people from being able to shop around to buy their products at the best possible price. This is especially important for expensive and popular items like guitars, and so Fender’s actions could have had a big impact on customers.

Quite simply, this behaviour is against the law. The fact the CMA has imposed large fines on major musical instrument firms Casio and Fender in a matter of months should be a lesson to this industry and any other company considering illegal behaviour. Break competition law and you will face serious consequences.

As a result of Fender’s illegal actions, the CMA has fined it £4.5 million, which is the largest imposed in the UK for resale price maintenance. This comes just months after the CMA fined Casio £3.7 million for similar behaviour in relation to digital pianos and keyboards.

The CMA has produced guidance for businesses about RPM so they can make sure they play by the rules and avoid fines. Businesses can also watch the CMA’s short film that explains what RPM looks like in practice.

A public version of the CMA’s final infringement decision will be published in due course.

Whitecat

Wow, that is not a small fine at all. Genuine deterrent I’d hope. 

RaymondLin

I really doubt it will change anything They are not the first company who has been fined, everyone knows it is illegal for a couple of decades now.  Fender went into it eyes opened.  

Call me cynical but I bet they did some calculation and work out the cost of a potential fine vs profit and just budgeted for it.

gibsongretschfan

That’s nice the government get the money


Could have ordered fender to give away 4.5k Strats instead 

GuitarZero

The CMA did Casio for the same thing last year, and fined them £3.7m as stated in the article, I wonder how many other companies are going to fall foul of this.  This is part of a huge investigation into the MI business by the CMA which I believe is still ongoing, so Fender may just be another name on a very long list.  If Fender have fessed up, maybe it will encourage others to do so.

crunchman

Mixed feelings on this.  Like a lot of EU rules, this one seems to benefit big business.  The big internet box shifters will be able to undercut small shops and drive the last remaining ones out of business.

If you go back in time, books were sold at a price determined by the publisher.  Pretty much every town had a decent independent bookshop.  When that system was abolished, the likes of Waterstones took over with their economies of scale and killed off the independents.  Now we have Amazon killing off physical bookshops of every kind.

Our towns and cities are the poorer for not having bookshops where we can go and browse, but we do have cheaper books - for the moment.  What happens when Amazon have killed off all the competition?  Amazon got market share by undercutting everyone, but if you shop around now, they are often not the cheapest.

There is a danger of the UK's big musical instrument retailers becoming a cartel and keeping prices artficially high.  Some of the big ones have already formed some kind of buying consortium.

When fixing is allowed to go unchecked, prices get too high, but without some kind of maintenance of prices, you wind up with a handful of big boys swallowing all the competition and eventually jacking up prices.  In theory, a new player could enter the game at the point, but the start up costs would be too high.

There is no simple solution to this that keeps prices sensible while ensuring competition long term.. 

RaymondLin

crunchman said:

Mixed feelings on this.  Like a lot of EU rules, this one seems to benefit big business.  The big internet box shifters will be able to undercut small shops and drive the last remaining ones out of business.

If you go back in time, books were sold at a price determined by the publisher.  Pretty much every town had a decent independent bookshop.  When that system was abolished, the likes of Waterstones took over with their economies of scale and killed off the independents.  Now we have Amazon killing off physical bookshops of every kind.

Our towns and cities are the poorer for not having bookshops where we can go and browse, but we do have cheaper books - for the moment.  What happens when Amazon have killed off all the competition?  Amazon got market share by undercutting everyone, but if you shop around now, they are often not the cheapest.

There is a danger of the UK's big musical instrument retailers becoming a cartel and keeping prices artficially high.  Some of the big ones have already formed some kind of buying consortium.

When fixing is allowed to go unchecked, prices get too high, but without some kind of maintenance of prices, you wind up with a handful of big boys swallowing all the competition and eventually jacking up prices.  In theory, a new player could enter the game at the point, but the start up costs would be too high.

There is no simple solution to this that keeps prices sensible while ensuring competition long term.. 

Great in principle, terrible in practice.

It benefits the consumer but terrible for small businesses.  It just means without an online mail order presence, you are certain to be doomed.

Whitecat

Some would argue that if you can’t be bothered with e-commerce in the 2020s you deserve to be doomed... times change and business has to change with it, small and large alike. 

Aidanspaghetti

If you have a few minutes look into the Irish government and what it does with v.r.t on new cars...

Brize

Ridiculous. I've haggled on plenty of Fender guitars and I know that most of you on here will have done the same.

Interesting that the musical instrument sector has a total UK turnover of £440M, which is very modest indeed.

Aidanspaghetti

Brize said:

Ridiculous. I've haggled on plenty of Fender guitars and I know that most of you on here will have done the same.

Interesting that the musical instrument sector has a total UK turnover of £440M, which is very modest indeed.

But thats about 880 million more guitars for @HarrySeven =0

Whitecat

Brize said:

Ridiculous. I've haggled on plenty of Fender guitars and I know that most of you on here will have done the same.

Interesting that the musical instrument sector has a total UK turnover of £440M, which is very modest indeed.

Has nothing to do with haggling. The fine is specifically for not allowing retailers to advertise below a certain price online. 

Indeed £440m ain’t huge - and that’s turnover for the entire industry rather than profit, so £4.5m probably quite a chunk in terms of just Fender’s UK operation. 

Strat54

£440M isn't huge.....but there's only a dozen companies left now.....

Legionreturns

It's entirely customer driven though. 

Whilst Joe Public are happy to sacrifice quality of service for a few quid in savings, nothing will change. 

jellyroll

Who’s next? Martin? Gibson?

I suppose should qualify that for legal reasons. I’m not accusing those companies of price fixing. But anybody making that accusation could ask questions about why their UK pricing is remarkably constant across all their outlets. 

richardhomer

That’s a lot of cash. Not easily recouped, I’d imagine - unless they make another half-dozen or so Master Built Strats.....

guitars4you

Brize said:

Interesting that the musical instrument sector has a total UK turnover of £440M, which is very modest indeed.

Strat54 said:

£440M isn't huge.....but there's only a dozen companies left now.....

Whitecat said:

Indeed £440m ain’t huge - and that’s turnover for the entire industry rather than profit, so £4.5m probably quite a chunk in terms of just Fender’s UK operation. 

Remember this is the turnover submitted to the appropriate departments, via dealers and suppliers - It is generally supplied by those who are part of the MIA (Music Industry Association)

It won't include used sales, be it via e-bay, reverb, FB or dealers who sell used

But yes it shows what a small industry we are - Was it mentioned earlier on FB, and via an Anderton's interview, back in 2019, that they achieved around £40 million (might have been more) - But around 10% of the UK sales - Add major accounts like PMT, GuitarGuitar, GAK for starters and you can see how polarised sales are now, to a few large accounts

Then add that Thomann sales are around 600 million Euros, might be closer to 700 million now - So one EU dealer is bigger than the UK 

gibsongretschfan

guitars4you said:

Brize said:

Interesting that the musical instrument sector has a total UK turnover of £440M, which is very modest indeed.

Strat54 said:

£440M isn't huge.....but there's only a dozen companies left now.....

Whitecat said:

Indeed £440m ain’t huge - and that’s turnover for the entire industry rather than profit, so £4.5m probably quite a chunk in terms of just Fender’s UK operation. 

Remember this is the turnover submitted to the appropriate departments - Generally those who are part of the MIA (Music Industry Association)

It won't include used sales, be it via e-bay, reverb, FB or dealers who sell used

But yes it shows what a small industry we are - Was it mentioned earlier on FB, and via an Anderton's interview, back in 2019, that they achieved around £40 million (might have been more) - But around 10% of the UK sales - Add major accounts like PMT, GuitarGuitar, GAK for starters and you can see how polarised sales are now, to a few large accounts

Then add that Thomann sales are around 600 million Euros, might be closer to 700 million now - So one EU dealer is bigger than the UK 

To be fair Thomann must have a fair chunk of the UK market

Legionreturns

gibsongretschfan said:

To be fair Thomann must have a fair chunk of the UK market

Not after next week...

gibsongretschfan

Legionreturns said:

gibsongretschfan said:

To be fair Thomann must have a fair chunk of the UK market

Not after next week...

It’s cool, the pound will sky rocket

Clecko

I'm really intrigued by the maths behind this. The only numbers referenced are the £440m annual retail turnover and the £4.5m fine. I have no idea of retail margins or market shares, but if we made the assumption that Fender have a 20% market share (£88m pa retail sales) and a 60% retail margin, that's £53m UK turnover a year. 

I'm not going to hazard a guess on the operating profit of that £53m, but if retail price maintenance has netted them an extra 10% over and above what most of the guitars would have sold for, that's close to an additional £5m turnover per year - or ~£30m from 2013-18.

Again, I'm completely making the numbers up here, but it's an interesting little exercise to do and, given that there are no costs beyond the court case, this might have been their most successful marketing campaign of the 21st Century to date.